Volkswagen’s stock dropped after the German automaker announced a partnership with Rivian Automotive to create software for cars. This is one way that Volkswagen is improving its technology.
VW and Rivian agreed late Tuesday to spend up to $5 billion. VW will invest $1 billion in convertible bonds in Rivian and another $1 billion to set up the venture. VW will also invest up to $2 billion in equity in Rivian and another $1 billion in the venture.
Rivian RIVN, 26.84% stock went up 50% after market hours, but VW’s preference shares VOW3, 0.14% went down 2% in early Frankfurt trade and are now down 6% for the year.
VW will be able to use Rivian’s current technology once the deal is official.
“This deal is more proof of VW’s new partnership approach and [CEO] Oliver Blume’s plan to fix VW’s old tech problems, which we strongly support,” said Harald Hendrikse and his team of analysts at Citi. “But only if it means VW can lower its very large annual investments.”
VW also works together with XPeng XPEV, +1.89% from China.
They told VW that they should have started working together earlier. We think that VW should have started working with other companies a lot sooner. This would have saved them billions of dollars in research and development costs and could have led to a better technology product. “There is still a chance that the capitalized R&D on the balance sheet may be overvalued now that the strategy has changed,” the Citi analysts said.
Analysts at JPMorgan, led by Jose Asumendi, think that VW will use Rivian’s technology in the Atlas SUV and the Scout pickup truck.
“It’s probably too early to tell how this will turn out, but to sum it up, VW’s platform strategy has now grown into multiple plans/platforms across geographies, which lets the company make solutions that are unique to each market,” they said.
German fund manager DWS said that the VW investment is in line with a trend.
One method that seems to be used often to restore balance in the relationship between Germany and the United States is for German companies to buy U.S. companies at their highest prices, even if the business outlook isn’t great, and then have to write off most of the goodwill within a couple of years. “Almost every Dax company has taken part in this strange form of foreign aid over the last 30 years,” they said.
